Fighting Off Foreclosure

SHERRI CAUGHMAN prides herself on being the kind of conscientious New Yorker who does her homework before making any major purchases. So when Ms. Caughman, 44, a supervisor in the city’s food-stamp program, decided last November to buy a two-family house in Jamaica, Queens, she took a class on buying real estate, researched the property through city records and vetted the terms of her mortgage with her former sister-in-law, a real estate broker.

Ms. Caughman was also counting on help from her elderly parents, who would move into the downstairs apartment and help out with the mortgage on the $515,000 house. But three days after she closed on the house, her parents decided to move back to South Carolina. Suddenly, Ms. Caughman, who makes $40,000 a year, was left to pay a $3,699 monthly mortgage.

“I don’t want to lose my home,” she said, fighting back tears as she picked at a spinach salad in a Long Island City cafe during her lunch hour. But she fears that she will have to sell her house and find a less expensive place to live. “I’m just starting over. That’s the hard part.”

Ms. Caughman’s experience illustrates what most foreclosure figures do not make clear: some homeowners in New York City are finding it hard to keep up with mortgage payments. Most of them are never included in the totals because — like Ms. Caughman, who plans to sell her house — they have more options available to keep them from becoming a statistic. In contrast to most homeowners in trouble around the country, owners in New York City are helped by a strong real estate market and other protections that so far have kept them from sliding into foreclosure.

While average national foreclosure rates were up 35 percent in the first three months of 2007 compared with a year earlier, New York State’s foreclosure rates dropped by 2.78 percent, according to data from RealtyTrac, a research company in Irvine, Calif.

There has, however, been a large increase in something called pre-foreclosure, which describes people who have missed several mortgage payments, suggesting that there are many people who are having trouble paying their bills. There are even more New Yorkers who are delaying pre-foreclosure by negotiating with their lenders.

But most of those people will probably not end up in foreclosure. New Yorkers benefit partly because state and city laws require lenders to go to court before they can foreclose on a house or apartment. And many lenders are also aggressively trying to work out deals rather than foreclose. Most of all, New Yorkers can do something that owners elsewhere often cannot: they can sell their homes.

“As long as you have buyers available, you can stay out of foreclosure,” said Rick Sharga, vice president for marketing at RealtyTrac. “Our suspicion is that’s what is happening in New York. There’s typically equity that people can tap into to forestall the inevitable.”

More homeowners fell into foreclosure in Queens in the first quarter of this year than in any other borough. Out of New York City’s three million households, 319 of the 554 homes that went into foreclosure in the first three months of this year were in Queens, according to data tracked by PropertyShark.com, an online research company. That’s a 45 percent jump from the year before, when 220 of the 559 homes that went into foreclosure were in Queens.

Ryan Slack, the chief executive of PropertyShark, said that foreclosure rates have always been higher in Queens because it has the highest concentration of detached single-family houses, which account for nearly 90 percent of foreclosures, he said. That, he explained, is because banks allow the buyers to take out large mortgages.

Queens has more than 270,000 single-family houses, while Brooklyn has about 200,000 and Staten Island has about 100,000, according to PropertyShark.com. He added that owners of Manhattan condominiums, which often don’t require large down payments, could also run into trouble if there was a slowdown on Wall Street.

“If there were a major problem in the job sector — particularly in the financial industry — I think you would see massive foreclosures in Manhattan condos,” Mr. Slack said.

Lenders typically sue for the amount of the missed payments but ultimately can seek to take possession of the property. Although foreclosures are handled by the courts, the process is administrative, meaning that lenders and homeowners rarely face each other before a judge.

Court filings show that pre-foreclosure cases are climbing across the city. The number of New York City residents in pre-foreclosure jumped by 13 percent in the first three months of this year compared with the same period last year, according to RealtyTrac. Through March, 4,718 New York City residents missed at least three successive mortgage payments.

So far in 2007, courthouse filings for pre-foreclosures have doubled in Queens, Brooklyn and Staten Island, according to Jessica Davis, the president of Profiles Publications Inc., which tracks and publishes these filings. She said that the average number of weekly filings in both Queens and Brooklyn jumped to about 120 in each borough from about 60 a year ago.

Ms. Davis also sees more missed payments in Manhattan. For the first time in the five years that her company has tracked this data in Manhattan, she said, the number of weekly filings grew to about a dozen in the first quarter of this year, up from four a year ago.

Many of these apartments carry million-dollar mortgages, Ms. Davis said, and she predicted that a tenth of these cases would end in foreclosure 12 to 18 months from now.

“It gives me knots in my stomach to see these rates of pre-foreclosure,” she said. “This is not something to shrug your shoulders at.”

New York is one of 10 states that require foreclosures to pass through the court system. That means New York borrowers who default on mortgages can have more time to reorder their finances or to protest the foreclosure if they believe an error has been made, well before their homes reach the auction phase. Connecticut also requires such cases to go through the legal system.

In states like New York, homeowners actually own their property, even if they have a mortgage, and are entitled to protect their investments in court. The lender also has the burden of proving that the homeowner is in default.

In other places — California, for example — state laws and mortgage documents prevent homeowners from protecting their properties from foreclosure through the courts. That is why lenders are able to foreclose much more quickly.

The Center for Responsible Lending in Durham, N.C., says it takes an average of 445 days to foreclose in New York City, but the process is much faster in other states: 21 days in Texas, 37 days in Georgia and 120 days in California.

“New Yorkers are better off because going through the courts gives more time to get on your financial footing and escape from that final auction of their property,” said Ellen Schloemer, research and communications director of the center.

Lenders also are eager to work out deals because they don’t want to be stuck with the expense of carrying and then selling foreclosed houses. A loan in default in the New York area can cost a lender at least $60 a day, according to Cynthia Rosicki, the founding partner in Rosicki, Rosicki & Associates, a law firm in Plainview, N.Y., that represents lenders.

When banks don’t sell foreclosed houses at auction, they have to assume the costs of removing the owners or any tenants they might have. If they enlist the help of a real estate broker, they will have to pay a commission when the property sells.

Also, fewer investors are willing to buy properties at auction because they have trouble reselling them. For example, five of the six properties at a recent auction in Brooklyn went unsold; the same thing happened to five of the eight properties at a recent Queens auction, according to Krista Kujat, who attends auctions for PropertyShark.com.

In addition, a recently enacted New York law might have a chilling effect. In some instances, the law says, the owners of foreclosed houses have two years to buy them back if they are sold to investors.

“Real estate is an expensive asset to keep if you’re a bank,” Ms. Schloemer said. “They’re not real estate companies. It is much better for everybody involved to work out the loan.”

Foreclosure counselors and lawyers are scrambling to help as many homeowners as they can. Neighborhood Housing Services of New York City, a nonprofit group that has been counseling homeowners facing foreclosure for 25 years, hired four counselors in the last six months to help the one counselor who used to handle all its foreclosure cases. These counselors help clients reach deals with their lenders, refinance with other lenders or put their property up for sale.

“This is all preventable,” said Sarah Gerecke, the chief executive of Neighborhood Housing. “They can still sell the homes.”

That’s why many homeowners like Ms. Caughman have not fallen into pre-foreclosure. After Ms. Caughman’s parents decided to move, she tried to make her mortgage payments by working overtime three nights a week at her current job, and answering phones and entering data for $8 an hour at a drain-cleaning company another three nights a week. She moved downstairs and halfheartedly posted fliers to rent the upstairs apartment, but she did not find any takers.

In April, Ms. Caughman visited Neighborhood Housing Services after she missed her first mortgage payment. There, her counselor advised her to stop making mortgage payments and prepare to sell. To date, she has skipped three payments.

So earlier this month, she put her house up for sale, started saving for moving expenses and researched studio apartments to rent. She has been offered $490,000 for her house, but she is holding out for a higher price. In a last-ditch effort, she talked to a cousin about renting the upstairs apartment for $1,550 a month, and tried to get a grant to help catch up on her missed payments.

Cerinelly Disla, a program coordinator and adviser to Ms. Caughman at Neighborhood Housing Services, said that cases like Ms. Caughman’s were growing faster than she could manage. In April, she helped 20 homeowners who walked into her office in Jamaica, Queens. By May, she was taking on four new cases a day.

“We have a lot of clients in her situation,” Ms. Disla said. “The only thing she can do is sell the property as soon as possible.”

In some parts of New York City, especially Manhattan, owners may even profit from these sales. Fourteen months ago, Michael and Bonie Bonilla bought a $1.65 million condo at the Chadwin House on Seventh Avenue in Chelsea with a $1 million mortgage. Mr. Bonilla, who runs a restaurant in the Hudson Valley, said that he and his wife bought the apartment partly as an investment. But Mr. Bonilla said they stopped making payments when his business slowed down.

On April 23, their apartment appeared in public records as a pre-foreclosure because of missed mortgage payments to the Bank of New York. Now they are putting it up for sale. “It was too big of a mortgage, and business went down for me,” Mr. Bonilla said. “We decided to sell it.”

Based on data tracked by StreetEasy.com, a real estate information Web site, and on the average prices of the last three sales in the Bonillas’ building, the couple could expect to sell for about $1.34 million.

Darren Sukenik, an executive vice president at Prudential Douglas Elliman who is selling another unit in the building, predicts that the Bonillas’ apartment could sell for even more because prices in Chelsea have risen by 10 percent from last year.

“It’s a very convenient location,” Mr. Sukenik said. “It’s also a popular building.”

Not all owners who are having trouble making mortgage payments will have to sell their homes, of course.

Since 2001, Alex Boxill and his wife, Marva Espinosa, had been making their $2,300-a-month payments on their two-family house on a sunny block in Canarsie, Brooklyn. They had been living comfortably on Mr. Boxill’s pension from City University of New York and Ms. Espinosa’s pension from Random House.

In early 2006, the couple took out a home-equity loan to help pay off back taxes, and their monthly payments rose to $3,580 a month. But they quickly fell behind when Mr. Boxill had to help pay for the funerals of six relatives who died suddenly in Panama. In January 2007, they missed their first mortgage payment.

“It wasn’t like we were out there playing the Lotto,” Mr. Boxill said.

In March, the couple visited the Bedford-Stuyvesant office of Neighborhood Housing Services and asked the counselor to talk to their two lenders.

They borrowed money from their children to make two $3,580 monthly payments and wrote to their lenders to ask if they could have until September to catch up. Mr. Boxill, 65, is talking about going back to work, even though he has survived a stroke, prostate cancer and open-heart surgery.

Richard Trouth, executive director of Neighborhood Housing Services’ Bedford-Stuyvesant office, said that the couple have to make about $8,000 more in payments and then his organization will help them restructure their loans.

Through all of these negotiations, Ms. Espinosa said that no one involved ever considered letting their problems reach the foreclosure stage.

“We don’t want anything to happen to this house,” said Ms. Espinosa as she sat at a kitchen table stacked with bills. “They were just more interested in us getting it up-to-date.”

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